The best way to invest is to first identify a bullet proof approach. Never run out of money or get into a desperate situation. You can do this by first covering your base by doing two things:
- Ensure adequate liquidity – this could be 6 months to 2 years of living expenses based on how comfortable you feel
- Ensure safety corpus – this should ideally cover your near term goals such as child’s upcoming college fees, or a car purchase
You must invest in liquid funds or risk free instruments to meet the above two requirements. For liquid funds, go for mutual funds as they reduce risk of investing, offer you small ticket sizes as low as Rs 100 and are highly liquid. Avoid investing with brokers and go for direct plan mutual funds.
Do not take higher risks if the above two are not covered. Once you are set, then invest for growth. Here is how to do that:
- Open a demat account preferably a zero brokerage account
- Identify stocks of companies that carry very low debt, are run by promoters who have significant stake in their companies and continuously churn out a high return on capital.
- Further shortlist companies that are growing sales and profits steadily.
- If you are a beginner, then prefer stocks that are having a high earnings yield (or low P/E ratio). This will give you a margin of safety in case markets go down.
- Stay put for as long as possible (10 years plus), but do monitor the portfolio periodically when the companies announce their quarterly results. Dont get stuck with duds and prune the portfolio clinically.
That will give a pretty good start into investing!
Disclaimer:
I am a SEBI Registered Investment Advisor, however the answers here should not be considered as investment advice. Please contact me via the information shown in the profile for any investment advice related to direct equities or other investments.
